TDS credit later substantiated by challan and Form 27Q extinguished assessment demand, nullifying related penalty.

TDS credit claimed by the assessee was substantiated by production of the TDS challan and later reflection in Form 26AS after the deductor filed Form 27Q, with a rectification request pending; the revenue placed no material to dispute the challan or the subsequent credit. Because the penalty under section 270A was imposed consequent to an assessment demand that would be extinguished on granting the TDS credit, the penalty was deleted and the appeal allowed in favour of the assessee.

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Issues: Whether the penalty levied under section 270A of the Income-tax Act, 1961 is sustainable where the assessee had claimed TDS which was not reflected in Form 26AS at the time of assessment but the TDS challan was produced, Form 27Q was later filed by the deductor, the TDS credit subsequently reflected in Form 26AS and a rectification petition was pending.

Analysis: The assessee produced the challan evidencing deposit of TDS and later produced the updated Form 26AS showing the disputed TDS credit. The appellate record shows that the deductor filed the required Form 27Q after the assessment and appellate orders, and the department had a pending rectification request supported by the challan. No material was placed on record by the revenue to controvert the challan, the subsequent reflection of TDS in Form 26AS, or the factual contention that granting credit would extinguish the demand. The penalty under section 270A was imposed consequent to the assessment demand which, on grant of the TDS credit, would not survive.

Conclusion: The penalty levied under section 270A of the Income-tax Act, 1961 amounting to Rs. 1,07,620/- is deleted and the appeal is allowed in favour of the assessee.

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